Analyst Insight by Lianne van den Bos – Food Analyst

A number of sanctions against Iran could be suspended by the US and the EU after international inspectors confirmed the country has curbed its nuclear programme. This breakthrough could open up the tenth largest growing dairy market globally, which is expected to hit new (real) sales worth over US$1 billion over 2015-2020, the size of the entire Western European region combined. With Russia’s lockdown and China’s slowdown could Iran be a temporary fix? Iran’s large, young population, which has an open attitude towards new packaged food products, makes it a huge untapped opportunity, one of the few remaining markets to target after Myanmar opened up after political change in 2011. However, if sanctions are lifted this is likely to be a lengthy process and political instability is a key concern when doing business in Iran, making it a less attractive market for foreign investment.

Imports of Dairy Products and Birds’ Eggs 1997-2014

Demand for convenient packaged food by youngsters

Iran has a population of over 80 million and the majority of this is aged between 15-34 years old. This group has been very eager to purchase new packaged food items and has contributed significantly to market growth. The traditional habit of consuming loose/unpackaged products like rice, bread, yoghurt and cheese is now being replaced by the consumption of packaged items, especially in key urban areas. Given the fact that Iranian consumers have long been exposed to a more limited dairy offer from local manufacturers and neighbouring export countries, such as India, not backing the sanctions, consumers may well be more open to try products from Europe or the US, the largest dairy regions in the world.

Top Absolute Growth Markets for Dairy 2015-2020*

Iran’s strong reliance on independent small grocers a major bottleneck

In 2015, the Iranian dairy market is dominated by just two local players, Solico Food Industrial Group and Pegah Dairy Co, with a combined share of 50% of total sales. Partnerships with local players may be one way forward to try and establish a presence in Iran, as its retail network is very much scattered and dependent on independent small grocers as a result of a lack of multinational investment. For example, as political turbulence in Egypt eased and foreign investment increased, this has been the way forward for several international companies in terms of gaining access to the Egyptian market, as its retail landscape is similar. Arla gained access to an existing distribution network through its joint venture with Egyptian dairy Juhayna and Arab Dairy and Bisco Misr were hot acquisition targets sought by many multinationals, including Lactalis and Kellogg’s in early 2015.

Iran a temporary solution to Russia’s lockdown and China’s slowdown

Considering the fact that the Russian market is currently inaccessible to many dairy exporters with Putin’s extension of the important ban on dairy, Iran could be a potential target market for dairy products initially intended for the Russian market, as many companies in the past have ramped up production to meet booming Russian demand and now find themselves without a buyer, Finish dairy producer Valio being one of them. What is more, with the milk quotas lifted in the EU as of March 2015, European companies now also have the freedom to ramp up production without having to pay any levies. As such they’ll be looking to export to faster growing regions, potentially including Iran.